China Pursues Foreign Gold Mines

Almost exactly one year ago, we wrote about the interest that Rajesh Exports of India showed in acquiring gold mining assets here in Australia. In a similarly motivated move and despite Q1’s impressive performance, China is now taking advantage of generally low gold prices to search for distressed mining operations abroad with the intention of acquiring them cheaply and reducing their reliance on international stake holders. To date, Zijin Mining is one of only a very few China based companies that have actually acquired foreign mining assets and that looks set to change.

In support of this, Sprott Asset Management CEO Peter Grosskopf was recently quoted as saying “China has five-to-six gold companies. I have been in touch with all of them and they all have plans for increasing assets overseas”. Mr. Grosskopf continued to say that “most of the Chinese companies are looking at existing gold deposits and companies, rather than building mines from scratch”.

Chen He, Investment Director at Zhaojin Mining Industry Co. Ltd has indicated that “Zhaojin is looking for global opportunities” confirming that “it is a good time right now as the gold price is in the lower regions”. In Zhaojin’s case, possibilities range from acquiring company stock or purchasing projects directly. Potential markets include developed regions such as Canada and Australia in addition to developing markets such as South America.

 It is perhaps telling that the desire to expand operations coincides with declines in gold production. Figures sourced from the CGA (China Gold Association) indicate a 2015 production decline of approximately half a percent to 450 tonnes in China. Despite the fact that the production decline was small, the fact that it is no longer growing is significant given that the last decade has seen China’s gold output grow at an average of approximately 11% annually putting it significantly ahead of Australia, Russia and the USA as the world’s next three largest gold producing countries. Conversely, the same period of time saw Chinese gold demand increase by nearly 4% year-on-year; a figure that is wildly considered to be under-reported.

That said, the globalisation of China’s gold production provides yet more evidence that the relentless search for gold acquisition at all levels is an undeniable modern reality.